Friday, March 7, 2008

Dalal Street today was virtually trapped under an avalanche of retro-developments, local as well as global. Inflation racing past the crucial five per cent mark, lingering fears of recession catching up with the USA, and Left parties' fresh threat to the UPA government ~ all these factors put together offered a perfect recipe today for Sensex to come crashing down and end below 16k level.

As equities reeled under sustained selling pressure, the investors apparently switched over from Indian stocks to traditional gold buying sending yellow metal prices to new record high. The travel from stocks to bullion market, albeit strategic, has been paved with risk although the domestic investors and business are following in the footstep of markets in the USA, Europe and Asia.

Stock exchanges being most vulnerable to financial crisis opened low on Friday across Asia. The Bombay Stock Exchange and National Stock Exchange already burdened by domestic worries fell in line with negative and weak international markets. The week ended on a disastrous note with a number of questions remained to be answered by the government or RBI.The markets opened with bad news about rate of inflation breaking RBI’s band of 4.5 to five percent and rising to 5.02 percent for the week ended 23 February. Ten-month high inflation has been ascribed to increase in petrol and diesel prices announced on 14 February. Despite Union finance minister’s repeated contention that banks would be least affected by Rs 60,000 write off, the markets are unconvinced as the central bank maintains stoic silence.

Globally, reports have spread fast about Europe’s biggest bank, Switzerland’s USB AG selling its opaque mortgage securities worth euro 15.7 billion ($24 billion) at a discount of 30 cents per dollar. This has added to the lending crisis in the developed economies.

The Bombay Stock Exchange and National Stock Exchange felt the direct impact of these retro-developments as stocks continued to search new depths. The fall in equities was accompanied by depreciation of the rupee. From Wednesday’s closing of 40.30/31 it declined to 40.52/53 per US dollar, which has been six month low .

The 30-stock Sensitive Index started 331.92 pints down at 16,211.96 points against Wednesday’s 16542.08 points. It slipped further sharply to 15689.92 points losing 852.16 points. It recovered some ground but not enough to turn the sentiment around. The Sensex closed at 15,975.57 points losing 566.56 points or 3.42 percent. But the weekly fall in the BSE’s benchmark index was 1,603.20 points or 9.12 percent as it closed under 16,000 level.

Earlier in the day the Hang Seng of Hong Kong closed at 22,501.33 points losing 841.40 points or 3.60 per cent and Tokyo’s Nikkei 225 closed 12,782.80 points losing 3.27 per cent or 432.62 points.

Analysts say as the markets are losing ground fast the positions in F&O (futures and options ) have declined drastically to mere Rs 25,000 crore .When stocks were booming it had crossed over Rs one lakh crore. The withdrawal of levy exemption on STT has hit the day traders worse. Their daily profit making tricks mastered via arbitrage has fallen flat or rendered useless. In a way it curbed gambling and volatility. Some market watchers believe that stocks are returning to their “real values”. For instance Reliance Energy, the share that shot up to Rs 3,000 six months ago, has posted the biggest fall as it closed at Rs 1,270 on Friday. The company has set aside Rs 2,000 crore to buy back its shares purely to stall further crash in the price, analysts say.The markets had lost more than 9% in the past week. Check here for details.